Treasury Certificates of Credit are floating-rate government bonds with coupons indexed to 6-month Euribor
Rubiu: “Ideally, they should be subscribed at issuance, because then banks will not be able to charge intermediation costs.”
There is more than just the BTP. With interest rates still expected to rise, Treasury Certificates of Credit (or CCTs) could carve out new space in portfolios. Variable-rate government bonds with coupons indexed to 6-month Euribor can be subscribed either at issuance – saving on brokerage costs, which can be as low as 0.5 percent of their value – or later through one’s bank of choice. But without forgetting to diversify, warns Marcello Rubiu, sole director of Norisk Scf to We Wealth.
CCTs: What They Are and How to Subscribe
CCTs are variable-rate government securities with a coupon indexed to the semi-annual Euribor, which is the interbank reference rate. “They typically include an addition, technically called a margin, which can vary based on the maturity,” explains Rubiu. “Issuances do not follow a systematic frequency; the latest issuance took place at the end of June, the previous one in February, and the one before that in March of last year. Regardless, they are extremely easy to purchase. Ideally, subscribing to them during issuance is recommended because banks cannot charge intermediary costs that could reach up to 0.5% of their value. The situation is different for online banks, where commissions are lower. In any case, simply approach your reference bank or visit the post office.”
Risks Associated with Purchasing CCTs
The risks associated with buying CCTs include credit risk (the risk that the Italian government may be unable to pay the coupons or repay the capital at maturity), liquidity risk (inability to trade the security before maturity), and interest rate risk (as it is a variable-rate security). “In the past, it was possible to invest in securities indexed not to the Euribor but to the Bot index,” Rubiu recalls. “Therefore, the coupon moved synchronously with Italy’s risk. This is a difference not to be underestimated. Now, if the spread on Italian government bonds were to widen, the price of CCTs could also decline. In other words, the interest rate risk is minimal, while the spread risk exists just like with other government securities.”
Why and How to Invest in CCTs Now
“Now may be a good time to invest in CCTs because we do not expect interest rate cuts within the next two years,” states Rubiu. “But it’s important to diversify with other types of instruments. Allocating a portion to BTP Italia, another portion to traditional nominal BTPs, and considering that the interest rate hike approved by the European Central Bank makes monetary ETF solutions appealing, as they yield like the eurozone overnight rate,” he adds. Rubiu suggests avoiding overexposure to Italian risk. “Currently, the perception is very contained, but in the past, we have experienced quite volatile periods. So, confidence in Italy is fine, but let’s remember that we can invest anywhere and not dismiss other solutions.” According to the expert, the bond exposure to Italy should not exceed a range of 10% to 20% of the portfolio. “Within the government component, I believe that CCTs should have a slightly lower weight, BTP Italia slightly higher, and maintaining a portion in nominal BTPs, which currently offer a significant yield, approaching 4% for two years.”
